Sprint's New CEO Faces a Full Inbox

December 25, 2007

New Sprint Nextel CEO Dan Hesse has lots of choices as he takes over the ailing mobile carrier and looks for problems to start solving.

Sprint, the third-biggest wireless operator in the U.S., is losing subscribers as it keeps working through the merger of Sprint and Nextel, which occurred in 2005. On Tuesday, Sprint announced Hesse is taking over immediately for Gary Forsee, who was forced out by the company's board in October. Hesse, 54, previously led Embarq, the local wireless carrier Sprint spun off as part of the Nextel deal.

Sprint needs to both distinguish itself from competitors and get its own house in order, according to mobile industry analysts.

"They couldn't go on without someone who's willing to set a direction," said Avi Greengart of Current Analysis. Sprint could try to compete with Verizon Wireless and AT&T Wireless on price, or with more flexible terms of service, or bring out more innovative devices, but it's failed so far to choose, according to Greengart.

"Their brand right now doesn't stand for anything," he said.

One thing the Sprint name has been associated with recently is disappointing customer service. Reporting on the quarter ended Sept. 30, the company blamed accelerating customer "churn" to other carriers in part on longer help calls and waits for those calls. The introduction of simplified bills, expected to continue until the middle of 2008, boosted the number of those calls, the company said in a filing with the U.S. Securities and Exchange Commission. Sprint also noted new handsets at rival carriers, clearly a reference to AT&T's Apple iPhone.

Meanwhile, thanks to about 700,000 subscribers quitting the aging Nextel network, Sprint's subscriber base as a whole declined by a net 337,000 in the quarter. The carrier said it had about 54 million subscribers on Sept. 30.

What could most set Sprint apart is also its biggest gamble, the WiMax wireless broadband network it plans to build across the U.S. at an estimated cost of US$5 billion. Though the WiMax network is likely to be in place first, set to reach 100 million people by the end of 2008, Sprint's main rivals plan to have their own high-speed data offerings using a similar technology, LTE (Long-Term Evolution). And WiMax won't fix Sprint's long-overdue need to harmonize its cellular operations, currently split between CDMA (Code Division Multiple Access) and Nextel's older iDEN technology, Greengart said.

If it goes ahead with WiMax -- interim CEO Paul Saleh said this month the business might be spun off -- Sprint will have to convince skeptical investors it's making the right move, said Yankee Group's Phil Marshall. It will also need to find a way for WiMax to truly complement the cellular business, Marshall said. So far, Sprint has painted WiMax as a mobile service distinguished from its conventional voice offerings by the promise of an any-application, any-device model. A better plan would be to push WiMax as an alternative to wired broadband that's bundled with Sprint's cellular service, Marshall said.

However, in the short term, Hesse just needs to get the company to run its existing businesses better, Marshall said. Cleaning up customer service would be one key move, he added. Judging from Hesse's previous performance -- he once headed AT&T Wireless -- the new CEO is qualified to do this, according to Marshall.

"He's very pragmatic and systematic in his management style," Marshall said.